You can give your children money from the time they are little - to? buy a bike, to get that first car, or buy a house.
does the IRS have something to do with the family ready?
for small loans, the answer is "no. "
The IRS does not cover most personal loans your son or daughter. They do not care how many times you make loans, if you charge interest, or if you ever get paid return.
However, there are exceptions.
interesting free loans
If you pay a large sum of money to your children, say, enough to buy a house, it is important to charge interest.
If you do not, the IRS can determine that interest you should have charged was a gift. (in addition, the borrower may be more motivated to actually pay you back if there is interest involved!)
the interest rate on the loan must be at least as high as the rate minimum interest set by the IRS.
you do not have to worry jumped interest being subject to gift tax rules unless the interest you should have charged, combined with other gifts to the same person exceeds $ 14,000 in 2013.
loans that are really gifts
Some people may think they can give large amounts of money to their children and say it is a loan, which avoids the hassle filing of a gift tax return.
IRS is wise to it.
the loan must be legal and enforceable, or everything can be considered a gift.
Fortunately, it is easy to make a legal loan.
Write a note that indicates the amount of the loan, when it will be paid, the rate of interest and any collateral or security (like a car).
Have both parties sign the note, and keep it in a safe place.
for very large loans or loans related to real estate, seek legal advice to ensure that you are covered.
student loans for tuition
you can make "student loans" to your children by developing a contract like any other loan.
When they finish and start making payments to you, you will pay tax on the interest income, and children can take the deduction for student loan interest.
take a bad debt deduction if your child does not repay you
one of the advantages of writing a loan agreement is that if your child does not pay, you can take a deduction for a nonbusiness bad debt.
In addition, you do not have to pay tax on the gift amount, as you would if you had given the money outright.
to take a bad debt deduction, you must prove that you tried to collect the debt.
The debtor must make a written statement that he or she can not pay, and include a good reason, such as unemployment.
filing a gift tax return for a loan
If I have to file a tax return gift for a "loan" that the IRS determines is truly a gift, I'll have the gift tax?
Probably not.
You do owe taxes when your gift giving life to all persons exceeds excluding tax Gift of Life ($ 5,250,000 in 2013).
for most of us, this means that we are safe.
other family loans that are sheltered from tax consequences
You do not have to worry about family loans being subject to gift tax rules if:
- You lend a child $ 10,000 or less, and the child does not use the money for investments. such as stocks or bonds
- You lend a child $ 100,000 or less, and net income of the child's placement is not more than $ 1,000 for the year
photo credit moriza .: photopin via cc
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